Most taxpayers heave a sigh of relief moments after filing their taxes, stash away related documents, look forward to their tax refunds, and wait for next year’s tax day. Though taxpayers have more than ten months to prepare for next year’s tax filing season, the majority suffer from procrastination; only remembering about tax filing a few weeks or days before the tax day. This poses the danger of missing out on important tax deductions, possible errors that could beckon an IRS audit, or even missing the tax filing deadline, which might attract hefty fines and interests.
The secret to successful tax filing lies in proper record keeping, which can best be achieved through the following three main ways:
1. What Are Your Possible Tax Deductions And Credits?
Tax payment and filing can be hectic, but they pay off if you claim tax deductions and credits you are eligible to. You must therefore, project any possible credits and deductions you are likely to be entitled for during the year. Assuming that you enroll your children to a daycare, you might qualify for a Child tax credit. Just keep an eye on your expenditures and ensure that you have the tax ID number of the childcare provider. The same applies to eligible deductions as a result of making donations to charities, use of business cars (where you have to keep track of the mileage by using a log), amongst others. You have to be informed about what will happen during the year to successfully keep necessary tax documents for easy tax filing.
2. Design a Filing System
A properly organized filing system is the gateway to stress-free tax filing. You must ensure that everything is organized by carefully labeling your files like “tax receipts” or related items. Similar documents must be filed in appropriate files, which have to be kept at an easy-to-access place like your desk or convenient drawer. In the beginning, it might appear a bit tricky and tedious, but with time, you might even start doing it without having to think about it. The same applies to tax documents like W-2s, which should be safely stored as soon as you retrieve them from your mailbox. When you finally start filing, it will be a breeze.
3. Go Digital in Record Keeping
The best way to safely keep your tax records for a very long time and for speedy future access is to store them in paperless form. This is very convenient and easy; just create a file on your computer or even in the cloud where scanned tax documents can be saved. There are some apps like the Shoeboxed that are helpful in storing digital versions of your receipts. You can even use your smartphone to capture the image of the documents and digitally file them away.
Since tax documents contain very sensitive information, taxpayers are encouraged to use passwords or encryptions. Regular back ups are also important so that you don’t lose the information. For simplified tax filing, plan in advance and keep the necessary tax documents.